A Roundtable on Grant Madsen, Sovereign Soldiers: How the U.S. Military Transformed the Global Economy After World War II

Laura Hein, Michael J. Hogan, Aaron O’Connell, Carolyn Eisenberg, Curt Cardwell, and Grant Madsen

Introduction, Roundtable review of Grant Madsen, Madsen assigned to them. First of all, they don’t work as Sovereign Soldiers: How the U.S. Military Transformed a set. Although all three were U.S. generals, they shared the Global Economy after World War II (Philadelphia: little else in terms of temperament, management style, University of Pennsylvania Press, 2018) assumptions about the foreigners under their control, or even priorities regarding U.S. national security after 1945. Laura Hein MacArthur is particularly intractable when it comes to arguing that he shaped Japan’s economy, a subject he found conduct this exercise by concluding that the format of little interest. His own pronouncements tended to stress is a case of “be careful of what you wish for ...” All things like “eliminating feudalism,” which functioned authors want their work to be taken seriously and all more as talking point than as a policy blueprint. journalI readers prefer lively, engaged material. You, dear Second, all three men quickly delegated economic readers, will be satisfied on both accounts. On the other planning to their economic advisors, who were not career hand, assembling five very well-informed reviewers to military men. This is what irks Aaron O’Connell, who, after train their full attention—publicly—on a younger scholar’s reading the first 60 pages, expected the book to show how first concerted effort is a lot of muscle. I suspect I am not specific economic ideas or policies were connected to the the only member of the firing squad to be glad that no sly experience of military leadership—of running occupied editor offered me this devil’s bargain of an opportunity territories rather than waging war. I shared O’Connell’s back when my first book appeared. experience of misdirection and his reaction that Madsen’s Grant Madsen started with a really great question: question would have been better answered by looking at How and in what ways did military leadership of American fully military-run governments, such as in Haiti, rather occupation governments affect economic policy? His thesis than the occupations of Germany and Japan, which were was that a coherent economic policy emerged when U.S. staffed at the upper levels largely by men who had joined military governments led by Army generals Dwight D. the war effort after substantial civilian careers. Indeed, Eisenhower, Douglas MacArthur, and Lucius Clay remade Madsen would not have needed to travel far: the Army was the economies of various territories under their command. running its own shows in Korea from 1945 until 1948 and Further, they applied those lessons to the postwar in Okinawa until 1972 with far less civilian input than in American and global economies during the Eisenhower neighboring Japan. Neither episode was known for good administration. But then, his own research suggested economic management, however, suggesting that career that the actual answer was, “it depends on too much else military men, as they repeatedly say in this book, were to attribute over-all economic policy, let alone economic poorly trained for that task.1 I would add that both Madsen outcomes, to these actors.” Good researchers frequently and O’Connell are a bit too quick to assume that Big Men find themselves in this position, and writing one’s way out who stood atop a chain of command had the most effect of it is one of the hardest tasks I know. As his response on outcomes. That may be why Madsen did not reframe to the other four reviewers shows, Madsen’s ideas are still his book by introducing his key civilian actors at the outset evolving, but the book itself reveals a scholar who had not together with his military ones, which would have better fully integrated the implications of the research with the helped his readers understand his true focus. framing argument when it went to press. To cut to the In fact, my own work argues that the key players were chase, this book does a number of interesting things but often not Americans at all but included economists among does not succeed in its main goals. the Germans and Japanese whom they ostensibly governed, Madsen was tripped up by three general problems, all a claim substantiated but not highlighted in the book. There flagged by the four reviewers in different ways: Who are were profound policy disagreements but they usually did the key actors? What is the relationship between economic not line up as Japanese versus American views. Takemae theory and economic policy? What role does politics play Eiji, Mark Metzler, Aiko Ikeo, Scott O’Bryan, Tsuru Shigeto, in this narrative and its reception? and W. Elliott Brownlee join me in pointing out that the The book begins by introducing Eisenhower, Americans interacted with Japanese experts throughout MacArthur, and Clay as the crucial figures around whom their years there and that all of them experienced those the book will be structured. They are famous and powerful engagements as deeply collaborative, although sometimes men, they operated in contexts where their orders were also frustrating.2 Some of these Japanese individuals are frequently obeyed, and they had long and impressive mentioned in Madsen’s tale, as are several German planners, careers. Nonetheless, they just don’t shoulder the task that but only episodically. Madsen is clearly developing

Page 10 Passport January 2019 this point when he somewhat aspirationally states in his 2. Laura Hein, Fueling Growth: the Energy Revolution and Economic Policy in Postwar Japan (Cambridge, MA, 1990); Hein, Reasonable “Response to Reviewers” that “I claim that a group of non- th Nazi German economists ultimately provided the basic Men, Powerful Words: Political Culture and Expertise in 20 Century blueprint that became that [transnational postwar] policy Japan (Berkeley, CA, 2004); Mark Metzler, Capital as Will and Imagination: Schumpeter’s Guide to the Postwar Japanese Miracle regime.” The book does not do so, but perhaps his future (Ithaca, NY, 2013); Aiko Ikeo, The American Economist Martin work will. Bronfenbrenner (1914–1997) and the Reconstruction of the Japanese I share Curt Cardwell’s pleasure that Madsen and his Economy (1947–1952), CHOPE Working Paper 2011–11 (Durham cohort are returning to the study of political economies. NC: CHOPE, June 2011). Available at: http://hope.econ.duke.edu/ Madsen focuses on currency conversion, inflation control, sites/default/files/Ikeo20110616c-Letter-BronfenbrennerJapan. banking, and taxation, all truly important topics. He sheds pdf, accessed November 4, 2018; Scott O’Bryan, The Growth Idea: his coyness about why in his Response—this is a critique Purpose and Prosperity in Postwar Japan (Honolulu, HI, 2009); of Keynesianism—which answers Carolyn Eisenberg’s Tsuru Shigeto, Japan’s Capitalism: Creative Defeat and Beyond question of why he ignores equally important aspects of (Cambridge, 1993); and Laura Hein and Mark Metzler, “Raising Taxes for Democracy: The Japanese Policy Environment of the the economy, such as industrial relations, decartelization, Shoup Mission,” and W. Elliot Brownlee, “Tax Reform during the and reparations. (The book is most explicit on this in the American Occupation of Japan: Who Killed Shoup” in W. Elliot middle of Chapter 11.) Yet, here too Madsen’s facts don’t Brownlee, Ide Eisaku, and Fukagai Yasunori, eds., The Political really run in parallel with the argument. As Cardwell Economy of Transnational Tax Reform: The Shoup Mission to Japan in explains, Madsen’s actors were operating in a larger context Historical Context (Cambridge, 2013). that was profoundly Keynesian, as the U.S. government poured resources into the Marshall Plan, domestic and international military spending, and highways. Madsen Review of Grant Madsen, Sovereign Soldiers: How the disagrees but incoherently. U.S. Military Transformed the Global Economy After Separately, I think the chief reason that none of us World War II found Madsen’s economic arguments persuasive is that he focused on theory per se when the historical debate was Michael J. Hogan actually about what was happening in the real world—that is, how to apply theory. All economists, including Keynes rant Madsen’s interesting book provides the reader himself, see inflation under most conditions as a problem with several different, though related, stories. He and all of them know that fighting wars encourages begins in the Philippines, with a brief look at the governments to cause excess inflation. (Keynes first made GAmerican occupation after the Spanish-American War his name analyzing the inflationary effect of German through the Organic Act of 1902 and the Jones Act of post-World War I reparations.) The challenge postwar 1916. During this time, the Philippines had no prospect of policymakers faced in Germany, Japan, and the United statehood in the American union; nor did Filipinos have States was not whether inflation was bad in some abstract any hope of American citizenship. They were promised sense but whether the tangle of problems they faced meant eventual independence, to be sure, and came to enjoy that it should be tolerated a little longer to meet other many of the rights, privileges, and protections enjoyed economic goals. Similarly, Keynesian and neo-classical by American citizens under the Constitution. They could economists alike share the theoretical assumption that pass their own laws, for example, and negotiate their own economies grow when firms invest in their workers and treaties. in new technology, they just differ on the policy question The exercise of such rights, however, was subject to of whether tax cuts are the best way to encourage firms to American review and approval, creating what Madsen, make that investment. Madsen’s periodic forays into the borrowing from Robert Latham, calls an American “external musings of individual economists would more effectively state.” By this he means a set of governing institutions, advance his arguments if he had more often included their basically military institutions, tied to but functioning assessments of actual economies in specific times and outside the United States and used to govern non-American places. His Response begins to do so but only by changing people. The external state in this case administered the the subject to preparation for international trade, a topic American occupation of the Philippines. From there, that is almost invisible in the book itself. the new state would be transplanted to Panama, Haiti, Madsen very usefully makes clear the vast distance Nicaragua, Mexico, and elsewhere, including Japan and between fiscal conservatism of the 1950s and either the Germany, to which Madsen devotes much of his attention. Tea Party or Trumpist conservatisms of today, as well as The second story is something of a collective his own admiration for the former. In the 1945-55 decade, biography of the officials, most of them Army officers, it was impossible to argue that the U.S. government was who administered the American external state, both from an inherently incompetent economic actor, given its recent Washington and in the occupied areas. Here Madsen victory in an enormous multi-front war. I believe Madsen focuses largely on Douglas MacArthur, Lucius Clay, and when he tells us that his protagonists became less attracted Dwight Eisenhower, as well as some of their key associates, to interventions such as price and wage controls over time especially the Detroit banker Joseph Dodge and General (although Richard Nixon still supported them in the 1970s), William Draper. He traces the careers of these men and the but Madsen reads an ideological critique into Hogan’s lessons they learned as they marched from assignment to comments that strikes me as paranoid and, in the claim assignment across the map of the American external state, that Hogan paints Germans as passive, incompatible with from World War I through the interwar years. Hogan’s own scholarship. Frankly, I read that review as a We learn, for example, of their disappointment with determined attempt to be kind by using most of his real the rapid postwar reduction of American force levels and estate to summarize (quite usefully) Madsen’s book and defense spending, which led the army to streamline its by critiquing it primarily as too ambitious rather than command structure but left it unprepared for the next war. internally incoherent, polemical, or misleading. The War Industries Board notwithstanding, they did not think the United States had an effective war-time plan for Notes: controlling and coordinating industry. Without a plan, the 1. Bruce Cumings, The Origins of the Korean War: Liberation and American economy underperformed its potential in World the Emergence of Separate Regimes (Princeton, 1981); and Yoshida, War I. It seldom produced what mattered most for the war Kensei, Democracy Betrayed: Okinawa Under U.S. Occupation (Bellingham, WA, 2001). effort, suffered from inflation, and, when the figures were adjusted for inflation, experienced no real growth in the Passport January 2019 Page 11 years between 1914 and 1920. the New Dealers were hostile to industrial monopolies, Finally, these men agreed with Wilson’s vision of which they saw as the principal source of militarism in postwar international cooperation and free trade, but they Japan, as they had been in prewar Germany. They wanted condemned his position on war debts and reparations, to break them up and at the same time promote a variety of which led inevitably to economic collapse, depression, and reforms, including women’s suffrage, freedom for political war. From their limited experience as an occupying force in prisoners, support for labor unions, and an end to child the Rhineland, and their postwar duties in the Philippines labor, all while fighting starvation and supporting high and Panama, they saw the benefit of empowering local levels of employment. To accomplish these goals, they were governments, so far as possible, and the need to stimulate willing to tolerate budget deficits, inflation, and economic production and trade, balance budgets, and control inflation controls. by means other than government regulation. Things began to change when William Draper became As these views suggest, the lessons they learned undersecretary of the army. With authority over all from wartime mobilization and their experiences with the occupation policy, he quickly began to apply the lessons American external state drove MacArthur, Eisenhower, he and Clay had learned in Germany to the occupation Clay, and their associates away from key elements of the of Japan. Specifically, he put earlier efforts to break up Keynesian approach to economic recovery that became Japanese monopolies on the back burner, convinced that so fashionable in the 1930s, toward a more conservative they created uncertainty and slowed industrial revival. strategy. Although both sides saw free and fair trade as Most important, he turned to more conservative fiscal and essential to global growth and stability, Keynesians were monetary policies, as he believed that New Deal reforms more anxious to promote political and social as well as and Keynesian policies had fueled inflation. He slowed the economic reforms in the occupied areas, more tolerant of pace of reform and urged austerity. He put limits on credit deficit spending to prime the pump of the economy, and and restraints on labor, eliminated government subsidies, more inclined to use wage and price controls to tame and pushed for faster progress toward a balanced budget. inflationary pressures—all of which were at odds with the The Japanese, he said, had to depend less on American monetary and fiscal strategies favored by Clay, Eisenhower, aid and inflationary government spending to deal with and other more conservative policymakers. These and shortages of all sorts, including food shortages, and earn related differences came to a head during the occupation of their own way through the revival of Japanese trade. Germany and Japan after World War II, which is the third These instructions would also guide Joseph Dodge, part of Madsen’s multistoried narrative. another veteran of the German occupation, whom In Germany, for example, these policymakers rejected Draper dispatched to Japan as the U.S. minister. Dodge a strategy that put political and social reforms before was to function more or less as an economic czar in this economic recovery. This had been Woodrow Wilson’s corner of America’s external state. Under his direction, approach after the First World War. He emphasized Japan reduced taxes, curbed government spending, and smashing the large German industrial conglomerates and, eliminated price and wage controls. According to Madsen, if necessary, averting starvation and civil unrest through the new approach worked. Over time wages began to deficit spending and economic controls to dampen inflation. increase, unemployment declined, inflation dropped, and It was also the approach embedded in the Morgenthau Plan budget deficits moved toward surpluses. At the same time, and JCS 1067, which emphasized the deindustrialization of however, labor suffered. About 126,000 railway workers Germany and the decentralization and denazification of its lost their jobs, and government employment fell by another political and economic structures. half million. Clay and his colleagues wanted instead to stimulate Given these and other shortfalls, it is not surprising long-term economic growth and stability, even if it meant that Dodge’s reforms remained unpopular with the slowing or suspending denazification, working with Japanese government, labor unions, and the press. Even existing German authorities, and letting decentralization the American State Department complained that economic take a back seat to restarting German industry. Most gains were minimal and hardships substantial, and they important, they wanted to control inflation, devalue warned that economic and political collapse was inevitable Germany’s inflated currency, balance its budget, and limit if Dodge’s reforms were not reversed. That is exactly what the power of German trade unions, even if these and other happened when Matthew Ridgway replaced MacArthur as reforms had an inequitable impact on certain elements of head of the American occupation and when the outbreak the German population. They believed this was the route of the Korean war led American officials to prize Japanese to real economic recovery and freedom, as opposed to a loyalty over Dodge’s conservative economic policies. The Keynesian strategy, which sought political justice ahead irony, according to Madsen, is that Dodge’s reforms were of economic stability, they said, but ended inevitably in actually succeeding: exports were climbing, prices were deficit spending, inflation, crushing taxes, price controls, stabilizing, inflation was declining. Even after much of rationing, and other state encroachments that would lead Dodge’s work had been undone, the Japanese government inexorably to economic regimentation and the end of still embraced the idea of a balanced budget and avoided private enterprise and democracy. any increase in the national debt for years to come, even as They followed this course not only in Germany, but also it once again pumped additional funds into the economy in Western Europe as a whole. The Marshall Plan, according in order to spur growth and higher levels of employment. to Madsen, started in Germany. He stresses that the plan’s Having covered this story, Madsen starts over with emphasis on economic integration across Western Europe, a fourth narrative, turning his attention back to political the revival of free trade, the stabilization of currencies, the and economic policy in the United States through the elimination of economic controls and deficit financing in Eisenhower administration. During his years as chief of favor of balanced budgets, and other aspects of American staff and NATO commander, Eisenhower, as noted earlier, policy had all been field tested in Germany and, before was moving away from Keynesian theory as the best way that, in experiments in the American external state. What to balance defense spending against domestic social and is more, they were being applied at the same time in the welfare programs, while the New and Fair Deals moved American occupation of Japan. toward it. Truman’s management of the economy during Initially, at least, the occupation of Japan was run by the Korean War reinforced his thinking. Truman signed Keynesian New Dealers under the leadership of Douglas off on the massive military buildup envisioned in NSC 68 MacArthur, whose primary emphasis was on political and financed the expansion through a frankly Keynesian reforms rather than economic recovery. Not surprisingly, strategy that accepted large budget deficits. New debt, Page 12 Passport January 2019 piled on top of debt accumulated during World War II occupation in its early years, before he switched his loyalties and financed by buying government bonds at suppressed to Dodge, for reasons that are not fully explained. Most prices, pumped too much money into the economy, caused important, it is impossible to gauge the influence of these inflation, and led to wage and price controls that, as conservatives without measuring it against that of other Eisenhower saw it, threatened private enterprise and the American officials, in Washington and elsewhere, who also loss of economic liberties. played central roles in the occupation. In sum, Madsen may When he became president, Eisenhower sought a new have tried to do too much, or too much too quickly. balance that would pair economic with military strength. What is more, Madsen often makes claims that are Applying the lessons he learned in Europe from the hard to defend. This is the case with his claim that Dodge’s German occupation and the Marshall Plan, he aimed to hard line succeeded in Japan, despite the dislocations, curb inflation, balance the budget, reduce taxes, and put unemployment, and protests it provoked, its repudiation an end to wage and price controls, all while protecting by the State Department, and its reversal by the Japanese key social programs inherited from his Democratic Party government. To cite another example, his effort to predecessors. To achieve these goals he had to overcome distinguish Truman’s thinking from Eisenhower’s is forced. strong opposition from conservatives in his own party who Until the Korean war, Truman had worked day and night wanted deeper and faster cuts in wartime taxes, much less to combat pressure for increased defense spending coming spending on both defense and domestic programs, and a from his service chiefs and hawks in his administration. He balanced budget as soon as possible. Ike’s answer was the defended the goal of a balanced budget and drove defense New Look, which envisioned a capital-intensive strategy of spending down from the record levels achieved in World defense that relied less on expensive manpower and more War II. Even after the outbreak of the Korean war, Leon on airpower and nuclear weapons to guarantee the nation’s Keyserling and other Keynesians notwithstanding, he security. This strategy, together with the end of the Korean refused to spend as much as many of his military advisers War, allowed Eisenhower to curb the growth of military wanted and tried to drive the budget backwards as the war spending, which in turned cleared a began to turn. When it came to military path toward a balanced budget and a budgets, in other words, he and modest reduction in taxes. Madsen often makes claims that Eisenhower had more in common than Despite the recessions that began are hard to defend. This is the case Madsen seems to realize, including in 1953 and 1957, Madsen considers with his claim that Dodge’s hard a shared fear of turning the United Eisenhower’s program a success. It line succeeded in Japan, despite the States into a garrison state. succeeded in large part because the dislocations, unemployment, and In truth, Madsen’s account president was not a conservative protests it provoked, its repudiation raises doubts about how committed ideologue. He favored limited tax by the State Department, and its Eisenhower was to some of the reforms over massive tax cuts and the reversal by the Japanese government. conservative strategies the author New Look over the strategy of “flexible appears to celebrate. He admits that response,” which took hold under Eisenhower never took conservative President Kennedy in the 1960s. He was also willing to economic policies as far as Robert Taft and congressional protect, and even slightly grow, New Deal social and jobs conservatives wanted, even though he resisted the drift programs, like social security and the Highway Act of toward Keynesian solutions. Among other things, Ike 1956. His greatest achievement was slowing the pace of lived with budget deficits when he had to; supported the defense spending, which Madsen describes as reversing interstate highway program, which was basically a jobs the Keynesian strategies of the past, and making progress program; limited tax cuts; and endorsed new funding toward a balanced budget, not locking one in place. for social security. Madsen may not see Eisenhower as However brief this summation, it gives the reader a a Keynesian liberal, but neither does he see him as a good sense of the sweep of Madsen’s account. Its breadth conservative ideologue of the sort we are all too familiar is commendable, but it is also something of a problem. with today. Consider, for example, his treatment of the American If space permitted, it would be possible to mount a “external state.” He is right to suggest at one point that a more thorough challenge to Madsen’s celebration of the comprehensive exploration of this concept, built on the conservative monetary and fiscal policies that he attributes many fine works that have already covered the whole of the to Eisenhower, Clay, MacArthur, and other veterans of the American experience as an occupying power, would make American external state, and that he sees as succeeding, an exceptional contribution to the literature. However, his more or less by themselves, in rebuilding Japan, Germany, narrative dips into concrete experiences only here and there. and all of Western Europe. But I would rather close on a The result is a somewhat sketchy account that is limited more upbeat note. Despite the limits of his analysis, not to by its focus on just a few of the policies and policymakers mention his somewhat hyperbolic title, Madsen attempts involved. Often, for example, he notes only that certain a big book. It covers a serious subject—the external state, individuals built bridges, roadways, and harbors during as he calls it—over a long period of time; deals with their stints in the Philippines or in Panama or Germany difficult and complicated economic issues of the sort that after World War I. Even his more detailed treatment of the most diplomatic historians choose to avoid; advances a German and Japanese occupations is limited, as are his conservative interpretation in a scholarly field not known efforts to tie German occupation policy to the Marshall for its conservative views; and is clearly written and based Plan (although there are definite connections). on solid research. In short, while Madsen examines some episodes in Eisenhower’s insistence on moderation may have been more detail than others, no episode is treated in depth. the key to his success and may be the main reason why And nowhere is it clear that conservative fiscal and he is more or less ignored by Donald Trump’s Republican monetary policies alone accounted for whatever success Party. He had his convictions, of course, but he could the Americans enjoyed. In Japan, for example, he has to live with reasonable compromise and had a pragmatic concede that Dodge fell short of his objectives and his gains approach to policymaking, as Madsen shows in his were largely reversed. Something similar can be said about discussion of the Highway Act of 1956. When all is said and Madsen’s collective biographies. For example, his treatment done, it seems clear that Madsen really means to celebrate ignores important differences between the military leaders Eisenhower himself more than any particular approach to involved. In Japan, to cite just one case, MacArthur seemed economic policy. He is what we used to call an “Eisenhower quite comfortable with the New Dealers who ran the revisionist.” Passport January 2019 Page 13 Review of Grant Madsen, Sovereign Soldiers: How the occupations: Douglas MacArthur in Japan, and Dwight U.S. Military Transformed the Global Economy after Eisenhower and Lucius Clay in Germany. World War II Madsen makes it clear that he will not discuss every U.S. occupation; rather, he will focus only on the army Aaron O’Connell and on the people and the moments that “link military government as an institution with the economic policy that came out of military government and returned to t is always painful to review a first book negatively, the United States in the middle decades of the twentieth particularly a book that emerged from a doctoral century” (4). This seems a narrow scope for a book that dissertation. Who among us does not remember the promises an institutional history of military government, yearsI of research, the search for a meaningful argument, particularly since some of the Navy’s and Marine Corps’ the competition between themes and theses, and the advice occupations—Haiti (1915–1933), the Dominican Republic from committee members (which sometimes exacerbates (1916–1924), and Nicaragua (1926–1933)—were some of the rather than settles the competition between themes longest in U.S. history. But fair enough. Surely the Army and arguments)? We were all that student once, and our learned specific lessons in the Philippines, the Rhineland, memories of those difficult years might tempt us to be more and the Panama Canal Zone. Perhaps those lessons made charitable than we should be when holding our graduate their way forward to World War II. Perhaps they even came students to high standards. home to the Eisenhower administration and had some Writing bad reviews is even harder with books that span effect on the world economy thereafter. more than one subfield, as this one does If so, we never learn what they by moving between economic history were. Instead of a focused history of U.S. and military history. I know nothing Instead of a focused history of military government in three countries about the former, but something about U.S. military government in three (or even the economic components of the latter. After two careful readings, I countries (or even the economic those occupations), readers get a jumble must conclude that Sovereign Soldiers may components of those occupations), of different topics: summaries of the be very good economic history—that readers get a jumble of different 1898 Battle of Manila, the Root reforms is for others to judge—but as military topics: summaries of the 1898 in the U.S. Army, logistics failures in history, it falls far short of the mark. Battle of Manila, the Root reforms World War I, and a number of other Sometimes a book title promises more in the U.S. Army, logistics failures matters that have nothing to do with than it can deliver, and with this book, in World War I, and a number of military government or economic the promise came in the subtitle. Before other matters that have nothing to policy. Nowhere are we told what the reading Sovereign Soldiers, I had read a do with military government or specific military missions were in the number of books and articles on the U.S. economic policy. Philippines, Panama, or the Rhineland occupations of Germany and Japan, but I (and this omission is important, because had encountered no work that argued— the missions weren’t all the same). We or even suggested—that the economic policies developed never learn how many soldiers served in the occupations, in occupied Germany or Japan came home to the United what they did there, how the occupations were organized or States, let alone “transformed the global economy.” As led, or whether the missions succeeded or failed according someone who is always interested in the hidden military to the goals set by the commanders and the president. origins of everyday items, I was a bit cowed by the book’s Interspersed throughout the book are the outlines focus on economics, but decided to risk it anyway. If the of MacArthur’s, Eisenhower’s, and Clay’s professional broad outlines of today’s economic common sense—an biographies, but there is very little new information here. insistence on low inflation, readily available credit, and And instead of serving as a vehicle for the argument, the (until recently) free trade, all managed by an interventionist biographical sketches are at best colorful vignettes, and at federal government—had military origins, then I wanted worst, major distractions. In the early chapters, they cover to know about it. The book’s angle seemed fascinating; the the officers’ time at West Point, their first assignments, arguments seemed timely; and the entire project looked Eisenhower’s early interest in tanks, his work on the Army impressive, important, and ambitious. Battle Monuments Commission, the influence of General In fact, it was far too ambitious. Worse still, I think Fox Conner, Eisenhower’s time at the Army Command and Madsen was not served well by those who steered the Staff College, and his strained relationship with MacArthur project to publication, because the final product is poorly in the Philippines. There is occasional mention of how each organized, unfocused, and in need of a good editor. There officer understood economics (really just Eisenhower), are no problems with the prose, which is clear and direct, but this information comes mostly from memoirs and but there are numerous issues with basic organization, biographies, and precious little of it seems to rise above argument, chapter structure, evidence, and even a commonsense counsel about the dangers of rampant few problems with footnotes. These problems make it inflation or massive debt. impossible to review Sovereign Soldiers positively. A quick tour through chapter 3, “The Army in a Time The issues begin in the introduction with the author’s of Depression,” reveals the book’s organizational problems explanation of the book’s purposes, which diverge markedly and basic lack of focus. The chapter begins with seven pages from the argument promised in the title. Masden explains on the 1920s, Versailles debt, the 1929 crash, and the ensuing that Sovereign Soldiers has three goals. First, it hopes to offer depression, with short explanations of how economists “an institutional history of military government starting interpreted these events as they happened. This segues into after the Spanish American War” to explain “how the a narration of Roosevelt’s 1932 election victory and Army army found itself capable of governing a foreign people” Chief of Staff MacArthur’s spats with the president, neither after World War II (2). Second, it chronicles the “intellectual of which concerns economics or occupation policy in any history of the political economy that military governments real sense. created during the occupations of Germany and Japan” (2). Five pages later, MacArthur and Eisenhower are off Third, it explains how the economic lessons learned in the to the Philippines, with Lucius Clay soon to follow. But of occupations “came to dominate not only postwar Germany course, by 1935, the Philippines were not under U.S. military and Japan, but ultimately the United States in the 1950s” government at all; the country had a Filipino constitution (3). All of this will be revealed, readers are told, by a careful and a Filipino president with broad executive authority, as study of the military careers of the generals who ran the well as a Filipino-led national assembly and Filipino-led Page 14 Passport January 2019 supreme court. General MacArthur served as the military three chapters devoted to each country. Here, readers advisor to President Manuel Quezon, and Eisenhower had will find the same problems of distracting biography important duties—namely, to help the Philippines build (MacArthur’s failures in the 1948 Wisconsin presidential a thirty-division army—but none of this can be properly primary are not relevant to how he ran the Japanese called military government. occupation, nor are Commodore Matthew Perry’s visits to It is admittedly fascinating that three future leaders Tokyo Harbor in the 1850s), but the bigger problem is that of postwar occupations all lived in the same hotel in the book’s core argument doesn’t survive basic scrutiny. Manila, but the only lessons Madsen captures from their Yes, Germany and Japan faced serious economic problems time together concerns personality: MacArthur was after the war—inflation, debt, currency transition issues, aggressive, confrontational and willing to accept enormous and (particularly in Japan), deficit spending and corporate risk; Eisenhower was practical and attuned to means and monopolies (the zaibatsu)—and it is true that by the end of ends; Clay preferred Eisenhower to MacArthur and liked the U.S. occupations, those problems had largely subsided. building dams. All of this is interesting, but none of it But the entire premise of the book is that the U.S. Army coheres into an argument about the army in the Depression fixed these problems and even brought those lessons back or how the Philippines experience shaped the thinking of to the United States in the 1950s. It didn’t; civilians did. these future leaders in uniform or as civilians. Joseph Dodge, then the president of Detroit Bank, is Chapter 4 is titled “The Army, the New Deal, and the far and away the most important character in that story: planning for the Postwar,” and here, Madsen turns to he was the economic prime mover in both occupations, the economic theories that would influence the postwar and his “Dodge Line” became a synonym for the economic occupations. But again, there is a lack of focus, and the policy of the Japanese occupation. But he was also a civilian titles are misleading. We get eight pages on Keynesianism, and never served in uniform. The other drivers of economic Bretton Woods, and Secretary of State Cordell Hull’s policy in the German occupation were also civilians: Lewis thoughts on the relationship between economics and Douglas, Lewis Brown, Robert Murphy, Bernard Bernstein, security, which segues into a discussion of Treasury Gerhard Colm, Raymond Goldsmith, and indirectly and Secretary Hans Morgenthau’s plans for de-industrializing from afar, John Kenneth Galbraith and Adolph Weber Germany. Generals Eisenhower and Clay don’t enter (brother of the sociologist Max Weber). These are the key the story until three pages before the chapter’s end, and voices in the intellectual history of the political economy they get a total of two paragraphs, most of which is just of the occupations, and almost none of them are military a summary of a conversation with Secretary Morgenthau. ones. The army doesn’t come into the chapter at all. The same was true in the headquarters of the Supreme From a military history perspective, chapter 4’s failure Commander for the Allied Powers (SCAP), which ran the to address how the army prepared for postwar occupations occupation of Japan. While there was a general in charge is perhaps the book’s biggest omission, because there of SCAP’s economics section, Madsen admits that “the is a history here and it is one of the reasons the post- majority of staff serving MacArthur’s generals came from WWII occupations succeeded and later ones in Iraq and the State or Treasury” or from the private sector (131). And Afghanistan did not. In 1942, the army established the this makes sense, since fiscal and monetary policy were so School of Military Government (SOMG) in Charlottesville, complex and removed from military expertise that even Virginia, in order to train officers in the precise subject of MacArthur—a man not known for admitting what he did Madsen’s book: running foreign occupations. The SOMG not know—pleaded with his staff to “find me somebody took civil servants and businessmen from civilian life, that knows something about the economy of Japan, because offered them direct commissions in the army, and put them I don’t. And my military officers who are responsible for it through months of coursework in preparation for overseas don’t either” (142). service.1 Were these civilians operating under army authority When the need for occupation officials grew after the when they reigned in spending, slashed budgets, stabilized Italian surrender, the army also launched the Civil Affairs prices, and haggled with German and Japanese politicians Training Program (CATP) – a separate course of study for over budgets and policies? Yes. It is fair to say that because of officers running military occupations, which was hosted that, “the U.S. Military” revived the German and Japanese by ten universities around the country (including the economies or “transformed the global economy”? No. University of Chicago—Madsen’s own alma mater). Much The book’s final three chapters all concern how the like the School of Military Government, the CATP drew on fiscal and monetary lessons of the occupations made existing faculties from the humanities, area studies, and their way back to the United States in the Eisenhower social sciences—including economists—and gave military administration. I will leave it to economic historians to officers a four-month-long orientation on the history and evaluate how well the book makes that case, but it seems culture of the countries they would later be deployed to, ten unlikely to me that President Eisenhower’s economic hours of which were devoted to economics.2 By mid-1943, approach during his presidency came exclusively, or even the CATP was graduating 450 officers per month. primarily, from the occupations. After all, his tenure as The thousands of officers that came through the School military governor in Germany lasted only seven months, of Military Government and CATP all went on to hold staff and few—if any—of the major economic decisions were or field positions in every occupation the army ran, and taken under his leadership. Getting American troops some served in the most senior positions. (Indeed, when home, restoring basic safety, dealing with refugees and Lucius Clay took over in Germany, he replaced General POWs, and preventing mass starvation were the tasks that Cornelius Wickersham—a former director of the School of undoubtedly filled his day. Thereafter, as Chief of Staff of Military Government.) Record Group 389, “Records of the the Army, he was consumed with the work of running the Office of the Provost Marshall General,” in the National entire U.S. Army as it merged with the Navy Department to Archives and Records Administration has a five-volume form the Department of Defense—no small task. history of military government training and numerous What specific economic lessons did Eisenhower take training manuals and curricula. How can these stories from the occupations? What is the evidence that he learned and sources be absent from a book that seeks to explain them there? It is true that some occupation officials came “how the army found itself capable of governing a foreign into the Eisenhower administration—Joseph Dodge people” after World War II? was his budget director—but was Dodge channeling the Chapters 5 through 10 deal with the fiscal and monetary occupations’ lessons or just sticking to economic principles policies of the German and Japanese occupations, with that had served him well in a lifetime of banking? Passport January 2019 Page 15 First books are hard, and they are harder still when first- beleaguered occupation officials concluded that “future time authors get insufficient guidance along the way. Most of peace depended upon integrating Germany and Japan into the problems enumerated above—overly ambitious claims, the global system of trade and finance” envisioned at Bretton an overreliance on biography, unnecessary background and Woods (4). But they also understood that a prerequisite for underwhelming evidence—should have been noted and this development was the stabilization of their individual corrected before the book went into print. The University economies. Casting aside the Keynesian approach to of Pennsylvania Press did Madsen no favors in choosing public finance that had taken root within the Roosevelt (or allowing) a title that overpromises in several directions and Truman administrations, military officials adopted (both on the role of “the U.S. Military” in the story and on “a policy regime” that featured “balanced budgets, a zero- the claim that it “transformed the global economy”). Strong inflation monetary policy and investment-led growth” (4). editing would have reined in the competition between Madsen’s narrative brings to American foreign policy narratives and excised unnecessary a useful angle of vision, and he is background. Sound copyediting With considerable detail, Madsen surely correct in maintaining that would not have omitted footnote 24 describes how beleaguered occupation the role of U.S. military governments on empire from the introduction or officials concluded that “future peace in the economic sphere has received allowed the eight footnotes on the depended upon integrating Germany and insufficient attention. Moreover, Rhineland occupation (35–36) to be Japan into the global system of trade and in telling this story, he highlights drawn (erroneously, it seems) from finance” envisioned at Bretton Woods. But consequential economic decisions www.worldwarone.com — a website they also understood that a prerequisite implemented by military officials that any scholar should be dubious for this development was the stabilization that are often overlooked when of, and which does not contain the of their individual economies. submerged in the more dramatic material cited in the notes. . accounts of the early Cold War. It is possible these problems were Despite its muted tone, Sovereign noted but ignored, but the more likely explanation is that the Soldiers is in its quiet way a “triumphalist” history in publication process was rushed, and unfortunately, it shows. which the major decisions of the military authorities are There is much still to be written on the U.S. occupations portrayed as stellar achievements from both an economic of Germany and Japan—and indeed, on the many other and a political standpoint. While Madsen argues the case less successful attempts at military government that have for the former, he treats as self-evident the idea that the occurred in U.S. history. Sovereign Soldiers is unfortunately economic choices made by the Americans furthered the not a significant contribution to that literature. cause of democracy in Germany and in Japan. Although fulsome in his praise for General Clay, Notes: Madsen is more critical of the decision-making by General 1. Earl F. Ziemke, The U.S. Army in the Occupation of Germany, MacArthur. His complaint is that during the early period (Washington, DC, 1975), ch. 1. of occupation MacArthur granted too much latitude to the 2. Charles S. Hyneman, “The Army’s Civil Affairs Training Program,” The American Political Science Review 38, no. 2 (April New Dealers on his staff and was slow to recognize the 1944): 342–53. necessary course for Japan. Yet, fortunately wiser heads prevailed, as key figures from the U.S. military government in Germany pointed him in a more conservative direction. Review of Grant Madsen, Sovereign Soldiers: How the U.S. Madsen also seems unimpressed by MacArthur’s handling Military Transformed the Global Economy after World War II of the Korean War, but these failings are tangential to his main themes. Carolyn Eisenberg In discussing the American occupation of Germany, the author takes aim, as many scholars have done, at n this challenging book, the author takes on a long- JCS 1067, the initial set of instructions given to General neglected subject, namely the role of the U.S. military Eisenhower for the occupation of the country. Often treated in shaping economic policy around the world. In the in the historical literature as the unfortunate outgrowth serviceI of this objective, he has tied together the stories of of Secretary of the Treasury Henry Morgenthau’s desire three generals, each of whom occupied leadership roles in for revenge and his wish to de-industrialize the country, military governments after the Second World War: Douglas its flaws have seemed obvious. Yet Morgenthau’s anger MacArthur, Lucius Clay and Dwight Eisenhower. Some of notwithstanding, JCS 1067 and subsequent directives also this biographical material will be new to readers, including reflected a powerful reform impulse that administration the description of the generals’ relations with one another New Dealers injected into postwar planning. over decades. The reform agenda for Germany was not primarily about Yet Madsen is less concerned with their individual de-industrialization. It was a multi-faceted commitment to personalities than with the policy questions they wide-ranging denazification, the encouragement of a vibrant confronted and resolved. In the background of this inquiry labor movement, the decartelization and de-concentration is the author’s awareness of the American military presence of German industry, and the decentralization of banking. in Afghanistan and Iraq. And while he does not engage Of this list, the only policy seriously implemented was these experiences directly, he discerns a continuity in such banking reform, but even that was watered down over time. activities that goes back to the American occupation of the The reformers in military government were also in favor Philippines at the turn of the century. of substantial reparations from both capital equipment and To their responsibility for military government, all three current production. Unlike Secretary Morgenthau, who generals brought disparate understandings. Yet regardless was mainly interested in the removal of capital equipment, of how they started, or the location of their actions, all three most reformers saw the need for current production as eventually arrived at similar conclusions about how U.S. well, which implied the retention of a significant industrial economic policy should be applied. The author considers capacity. Underpinning this approach was the recognition this evolution to have significant repercussions beyond that generous reparations were vitally important as a means the occupied areas. He contends that the insights gained of ensuring four-power cooperation in occupied Germany. in postwar Germany and Japan informed Eisenhower’s For the Soviet Union, the ravages of the German invasion approach to domestic and national security policy once he and the costly effort to drive Hitler’s army back to Berlin became president. had left them in urgent need of material compensation With considerable detail, Madsen describes how from their recent foe. Absent such deliveries, pledged by Page 16 Passport January 2019 President Roosevelt at Yalta, the planned experiment in losses, and perhaps most important, the infusion of quadripartite occupation was unlikely to work. Marshall Plan aid, which provided a lucrative framework In relating the story of the military government in within which a range of policy choices could work. Germany, Madsen omits almost entirely the American In what sense can we consider the economic policies relationship with the Soviet Union and the tragic division in Germany and Japan a “military” achievement? What of Germany. Early in his book he states clearly that he will about the outsized influence of American businessmen not “take up the causes or course of the Cold War.” Yet by in the Economics Division of U.S. military government? sidestepping this topic, he precludes a more hardheaded A major figure in this regard is General William Draper, assessment of American economic decision-making. who became head of that division early in the occupation. In Madsen’s narrative, the splitting of Germany is While Madsen emphasizes his military service, he pays taken for granted, as something that American officials less attention to his role as a vice president for Dillon, Read, were powerless to affect. So minimal is the attention to this which had been heavily involved in marketing German development that for stretches of the narrative, one might securities during the 1920s. Along with Draper came a list of imagine that the eastern zone of Germany did not exist, nor businessmen and bankers, many from firms with previous for that matter did Eastern Europe. In repeated references economic interests in Germany and hopes for the future. It to Europe and to the “global economy,” these places are seems likely that these business connections weighed more mostly invisible. heavily on their thinking than a military uniform. Yet the division of Germany was not a given, nor is it From early on, Draper and his colleagues in the self-evident that the Russians preferred this outcome. For Economics Division were opposed to a reform agenda the short term at least, they seemed to prefer a unified and did what they could to create the kind of “balanced country and were willing to make significant concessions budget, zero-inflation monetary policy, and investment-led to achieve it. From the declassified records of the Allied growth,” which could be integrated into a global system Control Council, it appears that a series of U.S. and British of trade and finance” (4). In these efforts General Clay was decisions in the economic realm seriously undermined the usually a reliable ally and an effective implementer of their quadripartite project. ideas. These economic decisions were problematic even for The situation in occupied Japan was more complex, France and the Benelux countries, all of which feared a reflecting the longer influence of New Deal reformers and revived West Germany that could re-emerge as a military the more mercurial General MacArthur. Yet here as well, threat. However, for these other countries the promise when the time came to impose a “reverse course” in this of Marshall Plan assistance significantly diluted their theater, Secretary of the Army Kenneth Royall brought objections, as did the subsequent William Draper to Washington as formation of NATO. Madsen In Madsen’s narrative, the splitting of his undersecretary with authority correctly stresses the importance Germany is taken for granted, as something over the U.S. military in Japan. of currency reform in triggering that American officials were powerless Along with Draper came banker a remarkable resurgence in the to affect. So minimal is the attention to Joseph Dodge and others from western zones. Not included is the this development that for stretches of the the business community, some of fact that by the spring of 1948, the narrative, one might imagine that the eastern whom had also honed their skills in Russians in the Finance Directorate zone of Germany did not exist, nor for that occupied Germany. of the Allied Control Council had matter did Eastern Europe. In repeated Madsen’s important claim is essentially agreed to the American references to Europe and to the “global that in both places the military proposal. Unfortunately, the State economy,” these places are mostly invisible. played a pivotal role in bringing Department had instructed Clay a “global economy” to life. But in March that “the policy of this whether the military should be government is no longer to reach agreement on currency regarded as the formulator of those policies or as the and financial reform.”1 By that time the relationship with servant of others remains an open question. Moscow had already deteriorated and Washington was less Omitted from the discussion is the role of coercion. amenable to compromise on other matters. Yet during the Inside the American zone, the military held a monopoly on initial two years of Allied occupation, General Eisenhower the authorized use of force. To what extent was it acting in and General Clay had believed that cooperation with the conformity with the public’s wishes? And was the relevant Soviet Union was both feasible and desirable. public the Americans, the Germans, or perhaps neither? While Professor Madsen focuses considerable attention Madsen’s ready assumption of a democratic purpose leaves on Clay’s actions and views about specific economic this difficult matter aside. Yet on an array of subjects— questions, he largely ignores the general’s recommendations the socialization and codetermination of industry, for about maintaining German unity. As late as spring 1947, example, and the structure of trade unions and political Clay and some of his closest advisors were supportive of parties—German public opinion was ambiguous at best. reparations from current production, believing this would The same holds true for the most crucial question: should give the Soviets sufficient incentive to keep the country the economies of the western zones be fused, and was together. In this matter they were overruled by Washington 1946-49 the right time to create a West German state? These officials, who were more interested in West European concerns notwithstanding, Sovereign Soldiers is a valuable recovery than in keeping Germany whole. contribution to the field. By considering US military As the author explains from the outset, U.S.-Soviet government as a discrete phenomenon and identifying relations, and by extension the division of the European relevant similarities across time and place, Madsen impels continent, are not the subject of his study. However, these us to think more deeply about the role of US military, as it matters are not so easily disentangled from the issues that has emerged during “the war on terror.” do concern him. Any assessment of the economic “success” of the U.S. military government in postwar Germany must Note: somehow include the forfeiting of the East, the failure to 1. Cited in Eisenberg, Drawing the Line: the American Decisions to compensate the Soviet Union for its devastating wartime Divide Germany (Cambridge, 1996), 382.

Passport January 2019 Page 17 Review of Grant Madsen, Sovereign Soldiers: How the ment and a straightforward economic element. The lens al- U.S. Military Transformed the Global Economy after lows him (and us) to better understand the action of these World War II men vis-à-vis Washington policymakers with whom they often did not agree. The views of Eisenhower and Clay be- Curt Cardwell come more central in the end because Eisenhower became president, with Clay as his close advisor, while MacArthur, am encouraged by Grant Madsen’s book, Sovereign as we know, merely faded away. Soldiers, because I am a huge fan of political economy As a student of political economy, and especially of the in the study of U.S. foreign relations history and history time period in question, I find this a useful book. There is moreI generally. Political economy is what got me interested great factual information in it as well as primary sources in diplomatic history in the first place and why I ended up that I find fascinating, intriguing, and confirming. Military going to graduate school and on to the professoriate as a government did have to act in ways that it was unprepared student and teacher of it. for, especially as occupation forces in the Philippines and There are signs that political economy is coming back Panama; and the history Madsen tells here is fascinating in vogue after three decades in semi-retirement. According in that regard, if brisk. Its positioning of the U.S. military to Sven Beckert, one of its foremost practitioners, one of as key to the political economy of the global economy that the main achievements of the “new” history of capitalism emerged under the United States’ watch and guidance is sweeping through the history a needed addition to the new profession of late is that it history of capitalism, where “reinstalls political economy as As a student of political economy, and especially of the military’s role has thus far a category of analysis,” which is the time period in question, I find this a useful book. received short shrift. This is indeed encouraging because of There is great factual information in it as well as pri- the book’s greatest strength. the weight that this new history mary sources that I find fascinating, intriguing, and It helps us identify with more is currently carrying in the confirming. Military government did have to act in specificity the role that mili- profession.1 Brad Simpson of ways that it was unprepared for, especially as oc- tary government played in the the University of Connecticut cupation forces in the Philippines and Panama; and global economy’s development characterizes political economy the history Madsen tells here is fascinating in that after (and before) World War II, in a recent essay as a “seriously regard, if brisk. and that makes it an important neglected area of research and contribution to the literature. writing in the history of US That said, the book, unfor- foreign relations,” which is true enough.His essay is a call tunately, does not live up to its promises, and I mean that as for historians of U.S. foreign relations to reengage with it, one who sincerely wishes that it did. First, the concept of an and hopefully the call will be answered.2 This is all to the external state is not satisfactory. Madsen admits that one of good. Sovereign Soldiers, it is a pleasure to state, adds to a its primary advantages is that it “allows for a fresh take on growing list of books emphasizing political economy. the vast literature already written on the topic” (8). This is Since this is a roundtable there is no reason to offer true. The concept provides a new window through which to an extensive summarization of the book’s argument. For- view well-worn territory. However, even his own evidence tunately, and to his credit, Madsen lays out his thesis suc- does not bear out the existence of an external state at the cinctly, so a brief summary is readily available. Sovereign level to which he wants to elevate it. The theory works fair- Soldiers is an institutional history of military government ly well in the beginning, when military government was as an occupation force rather than a fighting force. This is an occupation force in the Philippines and Panama; at that important to Madsen because, beginning with the Philip- point such occupations might have been new for the United pines, the military had to learn how to be an occupation States, and communications were still limited (although it force. But the book is also an intellectual history of the po- can be argued that the army’s war of conquest against the litical economy that military government created through American Indians from 1865 to 1890 provided experience its experiences in the postwar occupations of Germany and enough). To his credit, Madsen mentions this fact briefly in Japan—a political economy that was, Madsen says, trans- referring to MacArthur’s father’s (General Arthur MacAr- ferred to the United States via Generals Dwight D. Eisen- thur) experiences “oversee[ing] a regiment at Fort Wingate, hower, Douglas MacArthur, and Lucius Clay and had a New Mexico, through the 1880s” (129). deep impact on the domestic political economy of the 1950s. But when the book turns to its real concern—the post- To navigate what is well-traveled terrain in the realm WWII occupations of Germany and Japan—the evidence is of U.S. foreign relations history—the early Cold War peri- less convincing. Although there is no doubt that military od—Madsen employs the theory of the “external state,” ap- government had a degree of autonomy in the postwar oc- parently developed by political scientist Robert Latham. As cupations, often because of uncertainty and disinterest Madsen tells it, the external state of military government back home, and local events happening in real time, Mad- learned from the experiences of occupation, beginning in sen’s own evidence demonstrates that, in the end, the di- the Philippines and carrying on through the many occu- rectives largely came from Washington and were followed pations that military government engaged in throughout as strictly as possible. For instance, we learn that “while the early twentieth century through World War II and into many Japanese believed that MacArthur made the occupa- the Cold War. Because no one really knew how to carry out tion rules on his own authority . . . in reality he did his such occupations, and because there was little direction best to follow the written policy he received” (127). We are from Washington, military government had to learn on the also told that MacArthur “planned to accomplish a radical fly. transformation of Japanese society” but that “the orders he Madsen follows the careers of Eisenhower, MacAr- had already received from Washington told him to do the thur, and Clay to relay this history. He contends that, while same thing” (130). And again, Madsen tells us that “in ad- Washington twiddled its thumbs, these top generals were vancing these reforms [in Japan], MacArthur followed both forced to devise plans to operate the occupations of postwar the spirit and letter of the orders sent from Washington” Germany and Japan. However, they were well prepared to (132). In October 1948, the National Security Council issued do so from their past experiences in Panama and the Phil- NSC 13/2, which forced MacArthur to “accept an ‘ambassa- ippines. He proceeds to analyze their actions through the dor’ to spearhead economic reforms” (145). Undersecretary lens of political economy, which he never defines but ap- of the Army William Draper chose Detroit banker Joseph pears to accept as having a straightforward political ele- Dodge, who had earlier done extensive work on German Page 18 Passport January 2019 recovery. “Dodge,” Madsen writes, “would have the rank My point is that the external state, on close inspection, does of minister and would ‘advise’ MacArthur. But he would an- not appear to have been as external as Madsen would like swer to Truman” (147, my emphasis). us to believe. It might be, but Madsen does not, to my mind, A stronger case can be made in Germany, but still, ex- prove that in this book. amples of a non-external state abound. Secretary of War On another matter, I do not know what to make of a Henry Stimson helped General Lucius Clay and General book on the political economy of U.S. foreign relations pub- Dwight Eisenhower “maneuver against [Hans] Morgen- lished in 2018 that sees “the turn to the idea of ‘empire’ to thau” (87) to reinterpret Joint Chiefs of Staff directive 1067, explain the way the United States functions in the global which emerged from the Morgenthau Plan to punish Ger- context” as “another recent development among scholars” (7, many. Madsen does not mention this, but after meeting my emphasis). I think, were he alive, that would be news to with Clay and Eisenhower, Stimson even met with Truman William Appleman Williams, whose The Tragedy of Ameri- to discuss the problems with JCS 1067 and received Tru- can Diplomacy came out nearly sixty years ago, and his last man’s general agreement. book, Empire as a Way of Life, over forty. It would also be news In January 1946 Washington sent a “special mission of to John Lewis Gaddis, still very much alive, who spent a ca- technical experts on anti-inflationary measures” to Germa- reer trying to refute Williams but whose 1993 book We Now ny, against Clay’s wishes. Ultimately, the experts produced Know concedes that the term “empire” applies to the United the Clay-endorsed Colm-Dodge- States (something theretofore rejected Goldsmith plan, officially known as by conservative scholars), although the Plan for the Liquidation of War One further observation, rather than a not in the way Williams explained it; Finance and the Financial Rehabili- criticism, is that the book seems to be a and it might surprise Geir Lundestad, tation of Germany. In the end, it was thinly veiled dig at Keynesian economics, also very much alive, whose seminal blocked by the joint State-War-Navy almost as if that is its main goal. Madsen article from 1986, “Empire by Invita- Coordinating Committee and went contends that MacArthur, Eisenhower, tion,” moves in the same direction.4 nowhere in Washington despite lob- and Clay “missed what came to be called Oddly, Madsen cites Lundestand’s bying efforts by Dodge and Colm. the Keynesian Revolution” because they 2012 book The Rise and Decline of the Madsen claims that Bizonia, the com- were stationed overseas during the De- American “Empire” but seems un- bining of the American and British pression years, when John Maynard aware of the earlier work. sectors of Germany into one unit, Keynes wrote his famed treatise that all Scholars such as Noam Chomsky, was Clay’s handiwork, which, if true, but ended classical economic theory for Gabriel Kolko, Joyce Kolko, Thomas might stand as a prime example of the next fifty years. McCormick, Lloyd Gardner, Walter an external state, but it is not. Clay LaFeber, and Marilyn Young have pushed only for an economic bizone been using the framework of an with Britain, which he thought would bring the Soviets in American empire since the 1960s. In the 2000s, even conser- (a fact Madsen ignores). The State Department mutilated vative scholars were adopting the term. Witness Andrew Clay’s proposal and set out to create the bizone as a unified Bacevich’s The American Empire and Robert Kagan’s Danger- economic and political entity that would pave the way for a ous Nation.5 I do not know if Madsen is actually unaware separate West German state. That was the exact opposite of of this previous scholarship, but I can only go by what he what Clay wanted. wrote. Personally, I doubt it, but that raises another set of There is also the Marshall Plan. It is certainly far too issues that space does not allow me to comment upon. simple to argue, as Madsen does, that Secretary of State One further observation, rather than a criticism, is George Marshall’s visits to Clay in Germany in early 1947 that the book seems to be a thinly veiled dig at Keynesian were the basis for the “outline of the Marshall Plan” (111). economics, almost as if that is its main goal. Madsen con- The Marshall Plan came from many directions, and Clay tends that MacArthur, Eisenhower, and Clay “missed what was not always enthusiastic about it. After a recitation on came to be called the Keynesian Revolution” because they what the Marshall Plan intended to do, Madsen concludes were stationed overseas during the Depression years, when that “Marshall aid simply encouraged the rest of Europe to John Maynard Keynes wrote his famed treatise that all but do what military government aimed to accomplish within ended classical economic theory for the next fifty years (61). Germany” (112). This is supposed to be a strong argument He argues that in their occupation policies the three men in support of the external state thesis, but one could cer- (although it is hard to discern if MacArthur really felt this tainly argue that it shows that Washington developed the way) believed in what were essentially anti-Keynesian poli- Marshall Plan quite independently, with little input from cies—balancing budgets, cutting taxes, abolishing price military government in Germany. Both of these instances and wage controls, and curbing inflation even if doing so seem to be attempts to elevate the role that Clay and mili- meant high unemployment—in direct contrast to the Tru- tary government played in the Marshall Plan above and be- man administration, which stood by its Keynesian policies, yond what it actually was. Madsen makes a stronger case particularly in and through the Fair Deal and NSC 68. This when he examines Clay’s role in enacting currency reform belief came from their experiences as occupation leaders, in western Germany, but, although the reform proved more when, supposedly, they prevented deficit spending to put successful than Clay or anyone else could have imagined, people back to work. Furthermore, he argues that these pol- currency reform was not the be-all or end-all of German icies then informed Eisenhower’s and Clay’s actions when recovery by any stretch. Eisenhower became president, thus linking the lessons of On all these issues concerning Germany, I am discour- the occupations to the domestic political economy. In this aged by the fact that Madsen makes so little use of Carolyn endeavor, there can be little doubt that Madsen is a big fan Eisenberg’s Drawing the Line: The American Decision to Di- of Eisenhower, Dodge, and Clay (he is less sure of MacAr- vide Germany, 1944–1949.3 Eisenberg shows in painstaking thur) and that he is essentially using them as historical ac- detail the way in which military government was under- tors to denigrate Truman and the Keynesians. mined by officials in Washington, often to the point where The problem is that he is ignoring a major aspect of Clay, who supported trying to reach agreement with the the story that undermines this rosy view of the supposed Soviets so as to keep eastern Germany free until that alter- non-Keynesians: the role that military spending played in native became untenable, would react with utter disbelief. the recovery of Germany’s and Japan’s economies and in Her point is that officials in Washington were out of touch jumpstarting, or at least priming the pump of, prosperity with what was happening on the ground in Germany, but in the United States, which is often referred to as military their decisions still overrode those of military government. Keynesianism. I am not questioning that Clay (through Passport January 2019 Page 19 Dodge) in Germany and MacArthur (through Dodge) in Response to Reviewers Japan adopted anti-Keynesian measures, particularly as regards deficit spending. But the Marshall Plan, first, then Grant Madsen military spending under the Mutual Security Program, allowed Germany to avoid the deficit spending that otherwise would have been necessary, by Madsen’s own admission. And, in Japan, which had no Marshall Plan, would like to thank Andrew Johns for making this the anti-Keynesian Dodge Plan largely failed (again, by roundtable possible. When he told me whom he had Madsen’s own admission), even if Japan did avoid deficit invited to review my book, I will confess to freaking spending. But it was military spending by the United States out.I As will become clear below, I spent months—perhaps that allowed the Japanese to avoid that spending. years—working my way through the scholarship of these Turning to the domestic economy, we take it for granted reviewers (and our panel moderator, Laura Hein). I never that Eisenhower was not a Keynesian and that he rejected imagined I would face them all at once, all in one roundtable! Truman’s economic policies. He even managed to balance Given how well I feel I know their work, and how much I the budget several times during his presidency. But military depended upon it in my research, simply thanking them for spending did not shrink under Eisenhower in as dramatic their reviews seems insufficient, so I would like, in addition, a fashion as scholars often claim, especially when they are to express my gratitude to Laura Hein, Carolyn Rosenberg, trying to compare him to the Keynesian Truman. For the Michael Hogan, Curt Cardwell and Aaron O’Connell for fiscal year budget prior to NSC 68, Truman was seeking a their wonderful scholarship, which has so informed my defense budget of $13 billion, down from $14.5 billion from own feeble efforts to do justice to their work. the year before, because he, too, was concerned about budget Before responding to their challenging reviews, let me deficits (ignored by Madsen). Then, beginning in July 1950, explain a little about Sovereign Soldiers. The book crosses a military spending increased dramatically under the impact lot of historical subdisciplines—economic history, policy of NSC 68 and the Korean War. Eisenhower vowed to cut history and American political development, diplomatic defense spending, down to about $42 billion. He did so history, and military history. In selecting the reviewers, it by relying more on nuclear than conventional weapons seems clear that Andrew Johns tried to find scholars who to “defend” the United States and its allies, a questionable could speak to individual aspects of my study, or so their choice when assessing the soundness of Truman’s versus reviews seem to suggest. Each takes up issues dear to his or Eisenhower’s policies. (Truman’s approach was guns and her own research. butter; Eisenhower’s was apparently guns and butter plus At root, however, Sovereign Soldiers is an intellectual annihilation.) Still, a $42 billion military budget was hardly history of economic policy. Its central claim is that the close to the $13 billion figure Truman had hoped for in 1949, United States, Japan, and West Germany shared a distinct and, what is more important, the budget mostly increased economic policy regime in the 1950s because a central set of thereafter, right into the stratosphere. political actors, working in and around military occupations When Eisenhower left office, military spending was (what I label the “external state”), developed that regime, close to $50 billion and would go up ever after, with first in occupied Germany, then in Japan, and ultimately in increases in the nuclear arsenal as well. Eisenhower did the United States. There is much more to the story that I will not have to pursue deficit spending (although he did do discuss below. But I wanted to establish my goal because, in that too) because he benefited from an economy that was reviewing Sovereign Soldiers from their individual vantages, growing overall, as NSC 68 had predicted it would. Yes, only one reviewer mentioned what is, in my estimation, the good anti-Keynesian that he was, Eisenhower cut price central insight. When all is said and done, I claim that a and wage controls and things turned out wonderful for group of non-Nazi German economists, provided the basic the American economy. But this was due, again, to the blueprint that became that policy regime. overall growth of the economy, which likely would not The only reviewer to really acknowledge this part of the have happened absent NSC 68 or the rearmament program story is Aaron O’Connell, and he only acknowledges it to it and the Korean War engendered. Proof for these claims disqualify those who participated in it. “These are the key is not hard to find. It can be found, among other places, voices in the intellectual history,” he writes of the German in my own book on political economy and the early Cold and American civilians working together in the occupation, War, which I encourage interested parties to check out from “but almost none of those voices are military ones.” their libraries.6 As for the policy regime itself, I summarize it as two questions. “Should a vastly empowered government Notes: function (roughly speaking) on a pay-as-you-go basis? Or 1. Sven Beckert and Christine Desan, eds., American Capitalism: should it accomplish its goals on credit” (6)? The military New Histories (New York, 2018), 10. and civilian leaders I write about decided that “the answer 2. Brad Simpson, “Explaining Political Economy,” in Explaining to this question had enormous consequences,” because “a the History of American Foreign Relations, ed. Frank Costigliola and Michael J. Hogan, 3rd ed. (New York, 2016), 58–73. pay-as-you-go approach tended to keep a balance between 3. Carolyn Eisenberg, Drawing the Line: The American Decision to the interests of the state and citizenry” and avoided “over- Divide Germany, 1944–1949 (New York, 1996). commitments and broken promises that could lead to 4. William Appleman Williams, The Tragedy of American Diplomacy political upheaval later” (6). In other words, the men who (New York, 1959) and Empire as a Way of Life (New York, 1980); John came out of the occupation worried that loose monetary Lewis Gaddis, We Now Know (New York, 1998); Geir Lundestad, policy and deficit spending would lead (at best) to the kind “Empire by Invitation? The United States and Western Europe, of inflation and stagnation that in large happened inthe 1945–1952,” Journal of Peace Studies 23:3 (1986): 263–78. 1970s. At worst, they feared that these policies would end 5. Andrew Bacevich, American Empire: The Realities and Conse- in economic totalitarianism. So they avoided both. quences of U.S. Diplomacy (Cambridge, MA, 2002); Robert Kagan, Dangerous Nation (New York, 2006). Their assessment provides for some fine-grained 6. Curt Cardwell, NSC 68 and the Political Economy of the Early Cold distinctions that animate my response to Curt Cardwell on War (New York, 2011). how we should understand Keynesian economics. It also raises questions about how the Bretton Woods Agreements should relate to domestic economies generally and Keynesian economics specifically (which does not come up in the reviews but plays an important part in my economic analysis). Page 20 Passport January 2019 Finally, I am influenced by a number diplomatic we consider the economic policies in Germany and Japan a historians who try to think beyond largely American ‘military’ achievement? What about the outsized influence concerns and methodologies. As I will discuss at greater of American businessmen in the Economics Division of length below, all the reviewers, with the possible exception U.S. military government?” In many ways, this question of Carolyn Eisenberg, seem to have analyzed my book prompted my own research years ago. I wondered whether with concerns in mind that stem primarily from American it seemed fair to ascribe the genesis of so much policy to (for historiography. Michael Hogan essentially reads my book example) William Draper’s experience with Dillon, Read. as a return to Eisenhower revisionism and as a so-so defense More to the point, why was Lucius Clay “usually a reliable of American conservatism; Curt Cardwell feels it fails to ally and an effective implementer of [Draper’s] ideas?” appreciate American imperialism and the role of America’s What was it about his prior experience that suggested he military Keynesianism; and Aaron O’Connell sees it as planned to set aside much of JCS-1067, design a currency failing to provide a clearly demarcated institutional history conversion that would launch an economic miracle, or of the American military. devise economic policy at all? By contrast, my research is closer in spirit to a book like Thus, I started my research by investigating the prewar Daniel Rodgers’s Atlantic Crossings (although in my story experience of the military and civilian leaders who led policy ideas also cross the Pacific before coming ashore in the occupations in Germany and Japan. Contrary to what the U.S.). The military matters, because after World War II it Eisenberg (and, as I will argue below, Michael Hogan) sprawled around the world and therefore functioned as the contends, I found little to suggest a shared ideological transmitter of ideas or “circuit of exchange” (9). The subtitle commitment to what ultimately happened in the occupation. of my book, “How the U.S. Military Transformed the Global What Aaron O’Connell refers to as “at best colorful vignettes, Economy after World War II,” speaks to how the military and at worst, major distractions” serve to demonstrate not was uniquely positioned to communicate, influence, and only what military leaders learned in prior occupation implement ideas at that particular experiences, but also the biases they moment in history and how it Sovereign Soldiers is an intellectual history did not demonstrate. As I write, created a kind of “external state” not of economic policy. Its central claim is “Given the longer lens of this study, completely tied to any one nation that the United States, Japan, and West it seems unlikely Clay or Eisenhower (although clearly more American Germany shared a distinct economic had any strong ideological leanings than either German or Japanese). policy regime in the 1950s because a at war’s conclusion. If anything, they While I will try to respond to each central set of political actors, working in leaned toward the New Deal and not of my reviewers in turn, in places it and around military occupations (what a nascent ‘conservatism’—whatever makes sense to link them, given the I label the “external state”), developed that meant at the time. More than overlapping concerns they have. that regime, first in occupied Germany, anything, they seem motivated by a Of all the reviewers, Carolyn then in Japan, and ultimately in the pragmatic moralism” (283, n. 35). Eisenberg makes the best effort United States. The conclusion that Clay, et. to engage my book on its own al., did not necessarily come to the terms. This came as no surprise. In occupations with a particularly important ways, Sovereign Soldiers strong ideological bent opened up offers an extended response to her own Drawing the Line: the possibility (as I describe particularly in chapter 6) The American Decision to Divide Germany. I take up many of that none of these figures played the critical intellectual the same issues she addresses and follow her methodology. part in the story. Indeed, I discovered that none of the Like her, I look at political and military elites working in and key Americans really knew enough about what they were with military government. Thus, contrary to what Aaron doing to implement a coherent economic policy. They O’Connell says, I follow Eisenberg in thinking of military did not understand why the German economy remained government as concerning more than those in uniform. stagnant, how to rescue its worthless currency, or how to And like her (and unlike O’Connell) I found little help in get industry to perform. Pragmatists that they were, they the archives of the School of Military Government (SOMG) ultimately tried to solve these problems by turning to the or the Civil Affairs Training Program (CATP). As Eisenberg source at hand: German experts who had lived through a notes, Henry Morgenthau began to eclipse the work done similar experience after World War I. there when he involved himself in occupation planning. In other words, when Eisenberg declares that “whether More to the point, Lucius Clay began to change his mind the military should be regarded as the formulator of about many of his orders almost from the beginning. If one those policies or as the servant of others remains an open wants to understand the roots of, for example, Germany’s question,” I would argue that the word “servant” is both currency conversion, one will search the records of the too pejorative and vague, but the essence of the statement SOMG as well as the CATP in vain (which, sadly, I did). is exactly right. From an intellectual history point of view, Eisenberg is right to say that my narrative does not the policies coming out of the American occupation of do justice to the original hopes of New Deal reformers Germany represented a collaboration of German expertise seeking “a multi-faceted commitment to wide-ranging and American implementation. In short, the policy regime denazification, the encouragement of a vibrant labor belonged to both. movement, the decartelization and de-concentration of This takes us to a second important issue that Eisenberg German industry.” She is also correct when she notes that rightly raises and that, I must admit, I try to address only by the story of reparations, “vitally important as a means of implication: “the role of coercion” in relation to “the public’s insuring four-power cooperation in occupied Germany,” wishes.” It is possible that the public (I think she means the does not get as much attention as it might. Nor does occupied Germans) wanted a more robust labor movement the “relationship with the Soviet Union, and the tragic with greater denazification than what emerged—although division of the country.” But she essentially articulates some might argue otherwise. At the same time, though, to my reason for these omissions when she writes that too have any legitimacy an economic system must “deliver the often “consequential economic decisions implemented by goods,” so to speak. This is a very complicated topic;. the military officials” have become “submerged in the more debate over the relative merits of economic growth versus dramatic accounts of the early Cold War.” That is exactly social equality has raged and will continue to rage for some how I would say it. My particular story would get lost, I time, and it will not be put to rest in this venue. feared, in the drama of the Cold War. In writing Sovereign Soldiers, though, I argue against the Eisenberg is most on point in asking “in what sense can assumption that a wide variety of economic arrangements Passport January 2019 Page 21 might have produced a stable economic outcome. I am regimes that eschewed government debt in the name of skeptical, in other words, that Clay had many options at low inflation” (182). I discuss how the United States came hand (a point I will return to in my response to Michael to follow Japan in subsequent chapters, with Dodge’s help. Hogan). Here the comparison to Japan is helpful. Japan Along these lines, Hogan fears that I “often” make followed more aggressively the political reforms Eisenberg “claims that are hard to defend.” For example, he quotes mentions, only to see its economy go nowhere. American me as saying that “Dodge’s hard line succeeded in Japan, officials began to panic. One wrote home to complain— despite the dislocations, unemployment, and protests it with some justification, I think—that a “sane democracy provoked, its repudiation by the State Department, and its cannot rest on an empty stomach” (132). reversal by the Japanese government.” There is a genuine Moreover, Japan (along with several other European debate about the economic consequences of Dodge’s countries) also performed currency conversions shortly program and whether it or the spending associated with after the war, none of which produced an economic the Korean War ultimately sparked Japan’s own economic miracle—which raises the obvious question of why. What miracle. Again, my first concern lay in showing how it took other policies were in place in Western hold. Germany that were not in place In writing Sovereign Soldiers, though, Having said that, though, perhaps elsewhere? As subsequent military I argue against the assumption that a I can ask a question posed to me by occupations suggest, it is no easy task wide variety of economic arrangements an economist friend who reviewed to revive another nation’s economy. might have produced a stable economic this chapter: “What unemployment?” The effort is fraught with problems outcome. I am skeptical, in other As I show in chapter 10, the and potential pitfalls, and discovering words, that Clay had many options occupation’s statisticians never put a mix that accomplishes recovery often at hand (a point I will return to in my the unemployment rate above two proves as elusive as it is instrumental response to Michael Hogan). Here the percent! That is an extraordinarily in protecting the very political reforms comparison to Japan is helpful. Japan low number, and it raises at least (limited thought they may be) that followed more aggressively the political one question: how should we judge Eisenberg recommends. reforms Eisenberg mentions, only to economic “dislocations” that hardly If Carolyn Eisenberg’s Drawing the see its economy go nowhere. American affect broad economic indicators, Line gave me the thematic concerns officials began to panic. or quite quickly affect them in a that animate Sovereign Soldiers, positive way? Indeed, many of the Michael Hogan’s A Cross of Iron: main indicators began showing Harry S. Truman and the Origins of the improvement by early 1950, before National Security State, 1945–1954 provided the blueprint the Korean War began and at the very moment things for how to write a history that brings together an analysis supposedly looked bleakest for the Japanese economy. of state institutions, foreign policy, and economics.I I spent some time in chapter 10 talking about how appreciate his lengthy elaboration of the narrative arc and American officials could not make sense of the way some also his (tentative) approval of the scope of my “big book.” Japanese officials complained about the Dodge Line when At the same time, he offers a few criticisms that deserve a the economic data they collected told a very different story. response. He fears that even the “more detailed treatment I included this discussion as a metaphor for the similar of the German and Japanese occupations is limited, as are disconnect between historians and economists today. [my] efforts to tie German occupation policy to the Marshall Historians (Hogan included) have tended to generalize Plan (though there are definite connections).” Where he the complaints and take them at face value; the data, by says “limited” I would prefer to say “focused.” He is right contrast, seem to say something very different. that “no episode is treated in depth,” nor do I prove that Finally, what policy reversal? To give a few more the kind of “fiscal and monetary policies” I discuss “alone examples, Dodge set the exchange rate for Japan at 360 yen accounted for whatever success the Americans [I would to the dollar. It remained there for two decades. He insisted add the Japanese and West Germans] enjoyed.” that Japan develop an export-oriented economy based on Fair enough. But having said that, the book would that stable exchange rate. When did that change? have a hard time doing all these things without becoming There is, however, a more important point to raise that unmanageable. Moreover, my goal lay in tracing the is implicit in Hogan’s concerns, and here let me turn the origins of policy and how it spread. While I think there tables just a bit. While the corporatist approach strongly is good evidence for giving credit for the solid economic influences my research, its interest in organizational forms growth that occurred in the United States, Germany, and sometimes undercuts the search for good explanations Japan through the 1950s to the policy I discuss (and I cite for policy formation. Ideology ends up compensating the economist Michael Bordo to that end), I do not offer a for this weakness, where labels like “conservative” and thorough economic analysis. “liberal” stand in for the intellectual genealogy necessary Hogan suggests that I must “concede that Dodge to understand policy in its own right. Ideology explains fell short of his objectives [in Japan] and his gains were the organizational form which explains the ideology which largely reversed.” Curt Cardwell agrees. The “anti- explains the form, etc.My research indicated a distinct Keynesian Dodge Plan largely failed, again, by Madsen’s policy regime coming out of the occupations that did not own admission.” To be clear, I don’t say this. True, Dodge comfortably fit the terms “liberal” and “conservative” as thought (in 1952) that he had failed and that Japan would commonly used. Knowing that readers might be tempted to go back to a high-inflation, big-deficit economy. It didn’t. As apply those terms anyway, I tried to preempt the temptation for Dodge, he always thought that he had failed. He thought by warning, for example, that “the ‘big government-small he failed Clay as finance director in the German occupation government’ debate can trap historians in categories that and Eisenhower as director of the Budget Bureau. It was often obscure the many ways the American state has evolved part of his charm. both domestically and internationally” (6). Specifically, What I actually write is that “Dodge profoundly as I explain throughout, the occupiers accepted (and underestimated his impact” in Japan (181). More to the even promoted) big government even if they rejected the point, I argue that in the 1950s, in both Japan and the American interest in Keynesian deficit spending. In other United States, “there were state institutions that could words, they were not conservative in the typical American have been used along Keynesian lines. They could have sense, although I did not give their distinct approach a facilitated deficit spending to spur growth in the name name. of full employment. Yet both countries adopted policy Thus, I avoid the terms “conservative” and “liberal” as Page 22 Passport January 2019 best possible, trying to keep the focus on the actual policies wage and price controls to tame inflationary pressures…,” rather than on labels. For example, in the roughly 260 pages while the other side “Clay, Eisenhower, and other more of my narrative, I employ the term “conservative” eight conservative policymakers,” had different views.As the times, often in reference to American historiography. In occupiers discovered, however, there were more than “two Hogan’s ten pages of review, by contrast, it appears fifteen sides.” Really, the whole question of “sides” fundamentally times. More to the point, at times he reads into my book a misunderstands what they faced. They had inherited a conservatism that is not there. For example, he writes that combination of economic problems without precedent in “Joseph Dodge, another veteran of the German occupation the American context—massive inflation on top of a well- . . . reduced taxes, curbed government spending, and developed but moribund industrial economy, sealed foreign eliminated price and wage controls [in Japan].” This borders (not to mention sealed regional borders between sentence is two-thirds true. Dodge curbed government occupation zones), and huge relief issues generated by spending and ultimately saw an end to wage and price a massive influx of refugees. Worse still, the American controls. economics profession had been (rightfully) obsessed with However, as my book shows in detail through chapter solving the Great Depression; economists had given much 9, Hogan is wrong on taxes. Ikeda Hayato, Japan’s finance less thought to how inflation could cause stagnation (or minister, desperately begged Dodge for even a small tax cut what we now call “stagflation”). American experts had and Dodge refused. In fact, Dodge went on to reform tax almost nothing to offer. Hence the need for a distinct mission collection in a way that effectively raised taxes by spreading to “analyze programs and results of anti-inflationary action the tax burden. (Prior to the reforms, tax collectors worked taken by other European countries as well as analyze the on a quota system; once they had achieved their target, they German situation” (101). stopped collecting. Taxpayers could avoid payment if they This whole reliance on domestic political categories could wait long enough for the collector to reach his goal.) becomes most blatant in the last paragraph of his review. Japanese officials, not Dodge, sought tax cuts. Hogan makes a gesture in the direction of what I argue for Similarly, Hogan writes that “from their limited most of the book: “Madsen doesn’t see Eisenhower as a experience as an occupying force in the Rhineland, and Keynesian liberal nor does he consider him a conservative their postwar duties in the Philippines and Panama,” ideologue.” But then, to my astonishment, it turns out that the occupiers “saw the benefit of empowering local this should disappointment me, since my account “raises governments, so far as possible, and the need to stimulate doubts about how committed Eisenhower was to some of production and trade, balance budgets, and control inflation the conservative strategies [Madsen] appears to celebrate.” by means other than government regulation.” Here, again, Huh? this sentence is only partly true. To reiterate, I had hoped to make this whole discussion As I point out in chapters 3 and 4, Eisenhower at least, beside the point. Eisenhower “never really engaged in readily embraced regulation before World War II. At that the fight between American liberals and conservatives. point enamored of Bernard Baruch, he wrote a report for His political economy fit a global context where he never Herbert Hoover that recommended lost his focus” (244). Hogan may price controls and rationing in disagree, and in advancing his times of inflation. Moreover, both Perhaps I can ask a question posed to me view he certainly carries a gravitas he and Clay embraced the National by an economist friend who reviewed this that I do not. But I think the need Recovery Administration, which chapter: “What unemployment?” As I show to characterize policies within the set prices, production levels, and in chapter 10, the occupation’s statisticians simple and very American binary wages for whole sectors of the never put the unemployment rate above of “liberal” and “conservative” economy. In addition, Clay made two percent! That is an extraordinarily has grown a bit tired, even in his reputation by integrating the low number, and it raises at least one contemporary American politics. Army Corps of Engineers into the question: how should we judge economic It is nice to have an ally in Curt Works Progress Administration, and “dislocations” that hardly affect broad Cardwell, and I appreciate not only Eisenhower hoped to join the Public economic indicators, or quite quickly affect his review of my book but also his Works Administration until his them in a positive way? willingness to promote our shared boss, Douglas MacArthur, vetoed interest in political economy. He the idea. Both of these agencies dispenses with a summary of the represented large public works efforts funded by borrowed book to get to his concerns, so I will do the same. money. Neither Clay nor Eisenhower raised any ideological Both Cardwell and Michael Hogan have reservations objections at the time. about the external state. While Hogan sees promise in In a long and thoughtful review, these are perhaps small a “comprehensive exploration” of it, he writes, that my errors. But they are both telling. As if to illustrate my larger effort “is a somewhat sketchy account that is limited.” frustration with the way corporatism overuses ideology, Cardwell goes beyond Hogan in doubting its efficacy. nearly every time I see Hogan misstating what I wrote, he While “military government had a degree of autonomy is doing so by asserting aspects of American conservatism in the postwar occupations,” in the main, he says, my that are not in my story, or I went to pains to demonstrate “evidence demonstrates that . . . the directives largely came were not true. from Washington and were followed as strictly as possible.” I suspect this explains why he omits the key role played Specifically, he shows where my text demonstrates by the German economists in shaping occupation policy Washington choosing to halt, revise, or “mutilate” initiatives in Germany. He implies a ready-made “conservatism” begun by MacArthur, Clay, or Eisenhower. sitting on the shelf, as it were, for Eisenhower, Clay, Dodge, This criticism is well taken. I leave the term “external Draper et al. to simply implement. Thus, when he does state” undertheorized. In all honesty, I am still not sure talk about the German occupation, he describes a Germany how “external” an institution must be to qualify as truly that is, in effect, a tabula rasa, prostrate before its American “external.” In fairness, though, total independence never conquerors and ready to reproduce American politics on a fit the definition. The term refers to “those institutions new stage. “Although both sides saw free and fair trade as functioning outside the formal boundaries of the United essential…Keynesians [the first side] were more anxious to States, while still tied to it” (7). Still, this does not settle the promote political and social as well as economic reforms question of how much independence is necessary for an in the occupied areas, more tolerant of deficit spending to institution to count as “external.” prime the pump of the economy, and more inclined to use In crafting the book, my challenge could be summed Passport January 2019 Page 23 up in this question: how can we apply scholarly work on make nearly all economists, from Milton Friedman to Paul nation states (work in the subfields of policy history and Krugman, Keynesian as well, because nearly all agree that American political development, for example) to state-like government spending can spur growth, at least in the short institutions that do not belong entirely to a single nation term. But that was never the issue for Keynes nor for those or within its borders? Military government may have who followed him. ultimately depended upon the nation state in many ways, For economists, the debate usually turns on whether but it also remained responsible to and for non-American state spending crowds out private investment, whether subjects—and, in the German context, at times remained it tends to generate greater long-term gains than private surprisingly open to input into the policy process from local investment, and so on. But this is beyond my interest. citizens. The “external state” seemed the best shorthand for My point here is that the term “Keynesian” can only have getting at that. coherence analytically if it refers to something more than At the same time, I think Cardwell overstates the degree “look how much the government spent here.” of Washington oversight. To give one example from his Because I feared this kind of simplistic approach to what review, when I write Dodge “answered to Truman” (147), I we mean by “Keynesian,” I spend a fair amount of time in meant only that Douglas MacArthur had no authority over the book explicating the thinking of the foremost adopters him. As the subsequent chapter demonstrates, Truman never and adapters of Keynesian economics in the United States, in fact instructed Dodge to do anything once he assumed and particularly the people who would go on to criticize his role in Japan. Indeed, Dodge had such a free hand that the Eisenhower administration for failing to understand he openly implemented policies that directly contradicted Keynes’s insights. I write about Alvin Hansen and Paul what Japanese officials saw happening under Truman in Samuelson, along with Leon Keyserling and Walter Heller the United States. “One of the greatest difficulties I have (I also spend some time on Ishibashi Tanzan in Japan). to overcome, and a growing one,” MacArthur complained These men feared that savings do not automatically become to Dodge at the time, “is the basic difference in the policies investment, so they worried about “liquidity traps”—“idle we are imposing here and the policies being followed in the funds for which there is no outlet” and which, if left unused, United States” (171). How should we characterize a situation result “in a downward spiral of income and production” where military government pursues a set of policies directly (187). They also feared that even a small economic contradicted by those promulgated by Washington? Here, I downturn would quickly become a depression as “animal felt the “external state” served as a spirits” drove investors from handy analytic tool. the market. The solution? They While I could well be mistaken, I think Cardwell overstates the degree of recommended “an easy-money it feels as if Cardwell really just Washington oversight. To give one example policy (reduced interest rates) . . . prefers the rubric of empire to from his review, when I write Dodge large governmental expenditures “external state,” and that might “answered to Truman” (147), I meant only that of all types, and . . . huge public motivate some of his criticism. Douglas MacArthur had no authority over works programs financed by public That helps me understand his him. As the subsequent chapter demonstrates, borrowing” (187, italics added). In indignation at my incomplete Truman never in fact instructed Dodge to do general, they did not fear inflation. footnote on the historiography anything once he assumed his role in Japan. As Paul Samuelson said, the of empire. It might also explain Indeed, Dodge had such a free hand that he country should not let “concern his puzzling concern about why openly implemented policies that directly over price inflation dominate our I make such “little use of Carolyn contradicted what Japanese officials saw decisions” (251). Eisenberg’s Drawing the Line.” happening under Truman in the United States. In general, they also agreed Given what I have written above, that demand created its own he must mean that my narrative supply, which in very simple terms should have accepted her conclusions in toto rather than means that that if one just has enough money, eventually using her book as a launching pad to strike off on my own. someone else will produce what one wants. For the Turning to the economic part of my story, Cardwell American Keynesians, this often meant that governments observes that my book “seems to be a thinly veiled dig at could generate ideal levels of production if they just spent Keynesian economics.” To be clear, there is no veil (thin or enough. The economic historian Brad DeLong nicely otherwise) over what I say about Keynesian economics. summarizes American Keynesians as agreeing that the This is a central argument of the book, and specifically an business cycle represented a fluctuation “below some argument against historiographic accounts that summarize sustainable level of production,” not a “fluctuation around” the postwar decades as part of a Keynesian revolution. it.1 Thus, throughout the 1950s, people like Keyserling and This leads us to Cardwell’s last paragraph, which raises Samuelson criticized Eisenhower for letting the economy a host of issues in a short space. Some of these issues involve drop below its optimal output, for letting unused resources some fine-grained interpretive arguments, and I will try my go to waste. best to untangle what I can. Cardwell concludes that my Cardwell does a nice job of laying out the defense book ignores “a major aspect of the story that undermines spending figures for the Eisenhower administration asa this rosy view of the supposed non-Keynesians”— way of showing that military spending persisted at high specifically, “the role that military spending played in the levels throughout. He also mentions that we can find this recovery of Germany’s and Japan’s economies.” So far, so information in his own book. As it turns out, I worked up good. I agree that this spending was important. But then the same figures in a variety of places in my book (see, for he adds that such spending is “often referred to as military example, “Figure 18: US defense spending, 1950–1961).” Keynesianism.” That is also true in one sense: people do say The point, though, is that these figures alone amount to that. But I don’t use the term, and people who do are wrong telling us who won a baseball game by revealing only one to apply it to Eisenhower’s years in office. team’s score, which does not tell us much, even if it’s a high American historiography tends to call “Keynesian” score. any government activity designed to generate economic As I tried to clarify repeatedly throughout the book, growth. Whether it is Marshall aid, or tax cuts, or perhaps to understand the policy regime that emerged from the even land-grants, as long as the state is doing something to occupations we must consult the financing side of the spur the economy, it gets labeled “Keynesian.” Of course, ledger. What the occupation taught Clay, Dodge, Draper, this would make nearly every president and Congress Eisenhower et al. was to ask these questions: Where did the Keynesian, starting with George Washington. But it would money come from? From taxation? From borrowing? From Page 24 Passport January 2019 printing money? And why? Did the spending serve to soak Ultimately, Eisenhower saw some deficits. He also up “idle funds?” Did it aim to keep “effective demand” spent nearly all his political capital closing those deficits as high enough to guarantee maximum output and full quickly as he could. But again, that is not entirely the point employment? Was it devised to counteract “animal spirits?” (or the focus of my book). In making policy, he never talked These are the questions they cared about, and their answers about guaranteeing full employment through government distinguished them from the Keynesian economists, who spending. He never blamed liquidity traps for an economy had very different answers and fears (as I mention above). running below its potential, or feared “animal spirits” Military spending may have positively affected the among the investor class. He worked hard to limit inflation overall economy in the 1950s. Cardwell thinks so: 1950s because he feared what would happen to a global economy growth “would not have happened absent NSC 68,” tied to the dollar if America’s trade partners lost confidence he writes. I am less certain. But in and of itself, military in its currency. “Good Keynesian” is a weird misnomer for spending is not necessarily Keynesian unless it fits within Eisenhower. this broader analysis and unless it aims to “compensate” for I have left my response to Aaron O’Connell to the some failure in the private economy. end because I am not sure what to say. He writes that as Meanwhile, there is another sentence that needs a little a “military history” my book “falls far short of the mark.” unpacking. Cardwell writes that “the Marshall Plan, first, Given the way he reads it, I can’t see how it could have been then military spending under the Mutual Security Program, otherwise. If, like him, one dismisses the economic heart of allowed Germany to avoid deficit spending that otherwise the book as so much fuss over economic “common sense,” would have been, by Madsen’s own admission, necessary.” then reads the institutional aspects of the story exclusively If one follows the analysis of my book, it should be clear that through the lens of military history (ignoring the American- this sentence cannot make sense. Forgive me for spending political-development-cum-policy-history lens I try to perhaps too much time on this one sentence, but it gets at employ), and then dismisses much of the intellectual an important point that is also often misunderstood. As history because, well, the source of so many good ideas noted, Keynesian economics is often simplified into the never served in uniform, how could my book not seem like notion that “demand creates its own supply.” But there are a failure? As he excludes from the outset much of what the some catches. First, what if your economy simply does not book attempts to accomplish, it is no wonder O’Connell produce what you need? For example, finds himself perusing the footnotes suppose your country can’t grow for spelling errors. What else does he enough food to feed you. How can you American historiography tends to call have to add? spend on something that simply does “Keynesian” any government activity I suspect that he had hoped that not exist in your context? Worse, what designed to generate economic my book would look a lot like his if no one in or outside your country growth. Whether it is Marshall aid, or Underdogs: The Making of the Modern trusts your money enough to give you tax cuts, or perhaps even land-grants, Marine Corps, a good book to be sure. anything of value for it? No matter how as long as the state is doing something To speak to his sensibilities, I should much you have, you can’t buy anything to spur the economy, it gets labeled have blended organizational analysis because no one wants your worthless “Keynesian.” with cultural history, which would money. illuminate the way army leaders In general, both of these conditions developed governing capacities as held true for postwar Germany and Japan, which raises well as a governing ethos that would ultimately become questions about Cardwell’s understanding of the economic a coherent set of doctrines, capabilities and ideological implications of what he says in the sentence quoted above, commitments within an evolving United States Army. I particularly where the Marshall Plan is concerned. What should have elaborated “what the specific military missions could deficit spending hope to accomplish? As long as the were in the Philippines, Panama, or in the Rhineland” and, West German government tried to spend its own money, in addition, should have considered “how many soldiers who would sell anything to it, regardless of whether it served in the occupations, what they did there, how “balanced” its budget? Joseph Dodge made exactly this the occupations were organized or led, or whether the point in a radio address supporting the Marshall Plan in missions succeeded or failed according to the goals set by 1947. “We are not sending so much of our money abroad the commanders and the president.” At least I think that is as we are sending our goods,” he explained. “Monetary what he expected. Obviously, I did not write that book. But stimulations within Germany are of no help, for the goods I agree with him that such a book is long overdue. the extra money would buy, no matter how soundly based In any event, his is not the review I expected either, or tightly controlled the money might be, are simply not which is disappointing since I like his scholarship very available” (111–12). much and thought there might be some interesting overlaps This was the Achilles heel of the Keynesian analysis in our work. So, in hopes that turnabout is fair play, let me in its foreign context. Unless a country has access to goods describe what I had hoped to get from him. In my ideal and has a currency trusted by its own citizens and foreign review, O’Connell offers a few thoughts about how we trade partners, deficit spending (indeed any attempt at should relate military history to intellectual history, policy spending) will not work. That, in a nutshell, was the central history, and/or American political development, and he problem of the occupations. Hence, in both Germany and brings up some connections to his own work. He expands Japan the occupiers insisted on restoring a currency that on the way military historians have thought about non- would generate this trust; they worked to build a global military actors who nevertheless had an impact on the things trading system that included both countries while insisting he cares about: organizational capacity, public relations, and that both focus on growth through exports; and ultimately institutional culture. He takes up, for example, that part of insisted that the United States fight inflation, because its my book when Joseph Dodge wanders the halls of Congress, currency remained the anchor for the financial system they drumming up support for the currency conversion plan. had just insisted Japan and Germany join. True, American He even considers the clever way Lucius Clay and William aid facilitated these aims. But again, the mere fact that the Draper take advantage of the “missions” of businessmen to United States provided goods for other countries does not advance the military government’s policy aims. In my ideal make that aid “Keynesian,” for the reasons stated above. review, he notes that these episodes dovetail nicely with his More to the point, the aid had to be American because own work, which also considers the clever ways military America had the goods. No amount of German or Japanese leaders legitimize their organizations with Congress and deficit spending could change that fact. the American public. Passport January 2019 Page 25 Eventually, in my ideal review, O’Connell explains how military historians make sense of people like Clay or Eisenhower after they transition into professional and political life. Finally, he offers some pointed criticisms along with avenues for further thought about the external state (a term he never mentions) and military government. Perhaps he even brings his critique into the present, contemplating specific parts of the occupation in Iraq that were subcontracted to private firms like Haliburton and expressing insights about how military historians make sense of shared duties between private actors and army officers. Here he might even offer some thoughts based on his own military experience, thoughts that speak to the concerns raised by Michael Hogan and Curt Cardwell about exactly how free military governors are to make their own policy. Of course, these were my expectations and concerns, not his. He is fully entitled in his review of my book to defend his intellectual turf at my expense. But I would have liked a little credit for inviting O’Connell to maybe share a bit of his turf and try strolling around some of mine. In the end, though, his review mostly just said “Get off my lawn!” Note: 1. J. Bradford DeLong, “America’s Only Peacetime Inflation: The 1970s,” NBER Historical Working Paper, no. 84 (May 1996), 7.

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